The trustees of the Peter Buckley Settlement face a capital gains tax bill of an extra £250,000 after losing their tax dispute with HMRC. The case centres on the complex issue of Entrepreneurs’ Relief (now Business Asset Disposal Relief) and trusts.

Here, we look at the appeal decision and explain what it means for taxpayers and advisers.

Background to the Trustees of the Peter Buckley Settlement v HMRC tax appeal

The Peter Buckley Settlement was created on 31 March 1999 by Peter Buckley with Kenneth Rogers and Philip Jones as the original trustees. Peter Buckley was the principal beneficiary, and the income was payable to him during his life. On his death, his daughter Rebecca Mott would be entitled to the trust assets.

At some unspecified date Mr Rogers retired as a trustee and Peter Buckley was appointed as a trustee together with Philip Jones.

In its 2015/16 self-assessment tax return, the settlement claimed for Entrepreneurs’ Relief (ER) on the sale of the single share in Peter Buckley Clitheroe Ltd (PBCL).

HMRC took the view Mr Buckley was the qualifying beneficiary. PBCL was a trading company and Mr Buckley was shown as a director from 2 June 2009 to 9 November 2015. There was only one ordinary voting share issued in the company, which was given to Mr Buckley on 2 June 2009 and then transferred to the settlement on 9 September 2012. Mr Buckley didn’t hold any shares in PBCL as an individual.

HMRC opened an enquiry to check the ER claim and went on to decide the disposal didn’t meet the requirements to qualify for the relief.

In May 2021 HMRC issued a closure notice that updated the tax return to show an extra £251,280 of capital gains tax (CGT) was due.

The trustees appealed the closure notice to the First-tier Tax Tribunal (FTT).

The tax appeal decision

The trustees and HMRC agreed the only question the tribunal should decide was whether the one share in PBCL held by the settlement qualified Mr Buckley to claim he owned at least 5% of the capital.

Mr Buckley was a director of PBCL, and the only share issued by PBCL was registered in his name. He was a trustee of the settlement and was the only life tenant of the settlement.

But as a matter of trust law, the registered owner of a trust asset (i.e. the trustee/s) doesn’t own the asset personally. Mr Buckley wasn’t the only beneficiary of the settlement and therefore didn’t own the share personally at the date of the transfer.

The tribunal decided that at no time did Mr Buckley hold the shares in his personal capacity, so HMRC was right to reject the claim for ER.

It dismissed the appeal and ruled the extra CGT of more than £250k was still due for payment.

Our reaction to the Entrepreneurs’ Relief tax case

The interaction between Entrepreneurs’ Relief/Business Asset Disposal Relief and trusts is complex. The Trustees of the Peter Buckley Settlement v HMRC tax appeal decision makes sense and is in keeping with the rules.

There’s a lot of misunderstanding about how trusts work in general, so it’s not surprising a case like this has happened.

Our advice for taxpayers about trusts

It’s important to remember trustees don’t have any entitlement to ER/BADR in their own right. You should therefore carry out careful planning in advance of any sale to ensure the trustees are in a position to make use of the beneficiary’s entitlement on sale.

It’s wise to get professional advice to avoid making mistakes and potentially getting into a dispute with HMRC.

Our advice for accountants

Providing advice on trusts can be a minefield, especially for advisers who don’t regularly deal with this area. So, it’s sensible to obtain a second opinion if there’s a large amount of tax at stake.

Specialist tax advice for trusts

For expert advice on Entrepreneurs’ Relief/Business Asset Disposal Relief and trusts, call us on 07813 434195 or email stephanie.churchill@churchilltaxation.co.uk

We can also help with tax enquiries and investigations, and we offer a tax expert witness service.

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation